European banks are now well through the process of deleveraging their property books, DTZ said today at the launch of the firm’s Money into Property report for 2014.
In the UK this has driven down the volume of total invested stock (equity and debt) by 6% by the end of 2013, as loans sold at a discount outstrip the volume of new loans that are being made.
However, the picture varies across continental Europe where there has been less deleveraging, with Germany, France and the Nordics recording growth rates of total invested stock between 4% and 5%. Overall money into European property increased in 2013, by 2% to $4.4tn, the report estimates.
“We’re near the end of the bank deleveraging process, particularly in markets like the UK,” said DTZ’s global head of research, Hans Vrensen during a presentation of the firm’s annual report. “We’re beginning to see light at the end of the tunnel”.
Nearly 50% of lenders who were surveyed for the report have completed their work out of prime loans; 80% have started work out of non-prime loans. DTZ interviewed nearly 200 lenders and investors in March and April 2014.
“Markets like Italy and Spain still have a way to go in this work out. At the end of the day this deleveraging has been triggered by regulatory changes by central banks as well as the European Banking Authority and if the results of the Asset Quality Review at the end of this summer are good – as we’re anticipating – we feel the process is closer to the end than the beginning,” Vrensen said.
He suggested that the impact of the financial crisis is finally wearing off. “The single biggest change over the past year is that lenders have become much more optimistic,” he said.
The report shows a significant upswing in lenders’ sentiment, with about 40% believing the recovery started this year compared to just 5% that thought it had begun in 2013.
Vrensen said risk appetite for new lending has returned and there are also more lenders open to speculative development finance.
The lending landscape has changed towards more diversified sources of capital. “Non-bank lenders are picking up the slack from banks forced to deleverage”, he said.
Non-bank lenders increased their lending in Europe in 2013 by £20bn more than the previous year, a 46% increase. By contrast, commercial banks lent £60bn less last year.
Average leverage on all European invested stock continued to fall during 2013 – to 56% the report showed. Globally it has also fallen to 56% from 64% at the peak.